pauling, john
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Port Sustainable Management:A Financial PerspectiveJohn D. Pauling, P.E., BCEE
Executive Management Conference: Leading Your Seaport to Prosperity
Tampa, FL May 2-6, 2011
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Outline
Overview of Financial Aspects of Sustainability Making the Business Case for Sustainability
An EcoNomics Approach
Case Studies Sustainable Port Management
Conclusion
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Overview of FinancialAspects of Sustainability
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Sustainability
A means of configuring humanactivity so that society, itsmembers, and its economies areable to meet their needs andexpress their greatest potential,while preserving biodiversity andnatural ecosystems in the very longterm
Easily put
Sustainability is about thinking andacting in the future tense
(Planning for the Future)
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Sustainable
Growth
EconomicObjectives
EnvironmentalObjectives
SocialObjectives
Planet People
HighestValue
Profit
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The leader business spectrum
Beginner
Understanding ofkey CR issues
Compliancesystems in place
Performer
Senior-level buy-in Vision of sustainable
future
Systems in place todelivery
Leader
CR a strategicopportunity
Sustainableinnovationacross business
Pioneer
Business modelrefocused to profitfrom sustainablevalue creation
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Making the Business Case for Sustainability
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How Sustainability Creates Value
Activity
Initiative
Decision
Turnover growth
Margin growth
Reduce capital
expenditure
Risk reduction
Duration of competitiveadvantage
Reduced cash tax rate
Reduced cost of capital
Calculations for thematerialcontributions tovalue
Additionalvalue
Createvalue
Identify materialcontribution todrivers of:
Calculate specificfinancialcontributions
Combine togive additionto value
2 3 41
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How Sustainability Creates Value (Contd)
Reduce capital expenditure Avoiding unnecessary demand for fixed assets
Duration of competitiveadvantage
Shaping the market to the companys
advantage
Attracting people Prompt action on emerging strategic issue
Enhanced access to key resources
Reduce cash tax rate Reduced payments to government
Reduced cost of capital Improved access to financial capital at lowerrates
Financial Drivers
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How Sustainability Creates Value (Contd)
Turnover growth Product differentiation New products
New customers / market share / reputation /brand equity
Innovation
Margin growth Eco-efficiency
Motivating and retaining people
Risk reduction Increased security and quality of supplychains Reduce regulatory risk
Reduced reputation risk
Maintain license to operate
Financial Drivers
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Why is the Business Case so Difficult?
Challenge Solution
There is no one size fits allbusiness case
Only try to find your companys business case
The societal case doesnt
automatically make a businesscase for all situations
Dont expect a business case to exist for future
things the company needs to do
People have led withresponsibility which feels like
compliance
Opportunity trumps responsibility: framesustainability as a way of unlocking opportunityfor the company now and in the long-term
The more you look, the more youfind
Plan to explore how to make sustainabilitycommercial, and how to keep improving your
companys business case Sustainability and finance
professionals speak differentlanguages
Frame the case for sustainability in terms yourfinance director will understand, ideally indrivers of shareholder value
The no business case, no
permission vicious cycle
Plan small steps to iteratively establish aprocess of permission and results
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Delivering Profitable Sustainability
Assessment
Quantifying sustainability Informing, decision-
making(DELT) Delivery
Embedding capabilities Delivering sustainable
projects
Strategy
Identifying opportunities
Helping forge new directions -advanced solar thermal initiative
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Implementation Strategies
See finding your business case as part of a wider change program.Who are the key stakeholders? Who can be your champion in the finance function?
What are your consistent key messages?
Go to the finance department with a safe pilot.Identify a decision/project which wont trigger defense routines and only needs a small
amount of resource to investigate.
Use the pilot to build credibility and awareness.Where possible, have the finance function do the analysis building their capacity
Demonstrate you are concerned with finding the business case, not only justifyingsustainability
Keep creating a permission and results cycle
Address larger and more important areas: key decisions and financial processes (i.e.capital expenditure)
Keep building capacity of key individuals along the way
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Port Development ProjectsEconomic Considerations
Longer Term Benefits
Lower Discount Rates
Lower Transportation Costs
Less Ship Delays
Direct/Indirect Sub Job Creation Induces/ Supporting Jobs
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An EcoNomics Approach
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New Broader, Longer-Term Perspectives
An EcoNomics approach broadens the perspective(decision window) out to the future to consider factorsbeyond budget and schedule.
Projects are future-proofed
Expanded Decision
Window
CurrentDecisionWindow
Now 30+ Years
$8/T $20/T $85/T cost of CO2 emissions$0.1/m3 $0.3/m3 $2/m3 cost of water $0.05/kWhr $0.20/kWhr $0.50/kWhr cost of power
Environment
Cost & Schedule
Society
Efficiency
ImpactReduction
Sustainability
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Monetizing External Costs, Benefits & Risks
Trade-offs: Risk and Value : Cost and Benefit
?
?
?
?
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EcoNomics Approach
An EcoNomics project alternatives assessment developsa comprehensive accounting of all benefit, cost, and risk bymonetizing ALL influencing factors
Key features:Analyzes both financial and non-financial costs, benefits, and risksthrough monetization
Process designed to support clients overall sustainability objectives
Built-in future-proofing so that client can see long-term effects of and
to project optionsDefensible results based on reliable, non-subjective methodologiesand data input
Improved ability to communicate value of action to all stakeholdersincluding regulators
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Principal of Full Economic Analysis
t
t
xpp
i
CCBBNPV
x
0 )1(
)()(
ap
xP = project (internal)
x = society andenvironment (External)
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Businessas Usual
Increasing Level of Action
Zero Impact
FullS
ocietalNetBenefit(NPV)
EnhancedCompliance
Optimal
Sustainability
Finding the Economic Optimum
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Hierarchy of Assessment Project Type
What level of assessment is appropriate? Comparison of options at which level?
Policy Objective Level
Approach Level
Technology Level
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Assessment Process
27/04/2011
CustomerInput
ESIA
Eng. CostEstimating
LCA
Risk Assessment
CBA
Sensitivity Analysis
DELT
EcoNomics Framing Workshop
Report PresentationDecision Making
Support
Communication
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ENA Example 2: Former MGP Site Remediation
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Decision - Making
What should I do at this site?
Most sustainable method of remediation and how muchshould I spend?
Nature and extent of contamination
Risk (Human Health, Controlled Waters, Resources, Environment,
Property)Regulations
Stakeholder views
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What Could We Do?
Possible Objectives:Eliminate Human Health RiskMake site fit for redevelopment Property Holder
Protect the Public Water Supply (PWS) by preventing verticalmigration Water Utility
Protect the River Environment AgencyRemediate the aquifer itself Environment Agency
Which one is best??
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Remedial Approach Options
R1: Treat water at Public Water Supply Well (PWS) Monitored Natural Attenuation (MNA)
P1: Hydraulic containment in bedrock (Agency + WCofavored)
P2: Hydraulic containment in gravel P1 and P2
S3: Excavation above WT, ex-situ treatment (PH favored)
S1: Partial excavation + In-Situ Chemical Oxidation
S2: Full excavation (with piling), ex-situ treatment (LocalGovernment favored)
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External Costs of Remediation
Intended Cx:GHG emissions during remediationExternal costs of road transport
Unintended Cx:Introduction of contaminant to bedrock via piling (putty chalk risk)
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CAPEX: Role in Decision Making
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Base Case Benefits
Benefit Category 20 Year Benefit ($m)
Property value increase 10.5
Neighborhood blight reduction 3.9 (77.5 x 5% BF)
Aquifer Protection 8.1
River Protection 2.8
TOTAL (Maximum) $ 25.3 m
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Base Case NPVs
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Sensitivity Analysis: DELT-2
Robust Optimal Solution
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Using EcoNomicsAssessment
Good for complex, high value issues Good when outside forces are pushing for expensive
solutions
Good for helping determine course of action when multiplestakeholders involved
Good when perspective is needed
Good when multiple risks and tradeoffs are evident
Sustainability issues important
Significant external assets at risk Regulatory or public scrutiny
Reputation issues
Decision-making challenge
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